- The share of orders to buy the Pound shrank from 51 to 37%
- 57% of traders hold long positions
- 17% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
- The nearest resistance is located around 1.5547, the 55-day SMA
- Immediate support, represented by the weekly S1, lies at 1.5456
- Upcoming events today: UK FPC Meeting Minutes, UK Annual Budget Release, US Crude Oil Inventories, FOMC Meeting Minutes, FOMC Member Williams Speech, US Consumer Credit
The British Pound suffered serious losses on Tuesday, declining against most major peers. The largest falls were detected versus the Yen (0.95%) and the US Dollar (0.92%), following with lesser ones of 0.51%, 0.50% and 0.48% against the Euro, the Loonie and the Swissie, respectively. The Sterling held most resilient versus the Aussie, losing only 0.29% against it.
The British manufacturing production unexpectedly dropped in May, while total industrial output beat economists' expectations on the back of a strong growth in oil and gas extraction in more than a year. Manufacturing output declined by a seasonally adjusted 0.6% in May, whereas market participants had expected a 0.1% increase. Measured on an annualised basis, manufacturing production rose 1.0%, against the median forecast for a 1.8% gain, and following the 0.1% rise in April. The data also showed that industrial output climbed 0.4% in May, overshooting expectations for a 0.2% decrease. The extraction of oil and gas surged 7.3%, the biggest growth since February last year, when it soared by 10.5%. Mining and quarrying also recorded a strong growth of 4.9%. The British economy continued to expand steadily in the second quarter, but remained overly reliant on the services sector, which accounts for around 78% of the total economic output. At the same time, growth in manufacturing sector significantly lagged behind, suggesting uneven economic growth. After expanding at the 0.4% rate in the first quarter, the economy is expected growing at between 0.5% to 0.6% in the second quarter.
Britain's economy accelerated speed in the second quarter after a slow start to the year, growing 0.7% from the first quarter, according to NIESR. In annual terms, growth was 2.7%.
Paul Bednarczyk, head of research at 4CAST, is optimistic with respect to the world's largest economy over the coming months, saying that "we should be seeing some better US numbers coming through," which will lead the Cable to 1.54. Meanwhile, the analyst considers that "over the next three months Sterling will perform well on a trade-weighted basis," but GBP/USD is still likely to decline to 1.4850. In the longer-term perspective, Bednarczyk is also bearish, setting his 12-month forecast at 1.42, which will be a story of Dollar strength rather than Sterling weakness.
UK Annual Budget Release and FOMC Meeting Minutes
The UK Annual Budget Release is one of the most important data releases concerning the UK economy. It is considered to be a market mover, as it outlines the budget for the coming year, including spending and income levels, investments and etc. The increased spending creates jobs, while borrowing levels could impact the UK's credit rating. It is likely to have a high impact on the Sterling, especially if something unexpected turns up in the report. From the US side, the Meeting Minutes is to unveil the Fed's decision concerning interest rate hike. However, more members hinted on only one interest rate hike to occur in 2015, therefore the September hike is most likely out of the question. The Minutes tone is also expected to be rather dovish, which should weaken the Greenback. Nevertheless, the Buck could retain its strength against the Euro, amid the Greek debt crisis.Ross Walker, economist at Royal Bank of Scotland Group, suspects that GBP/USD may descend to 1.50 by around the middle of 2015, or even down to 1.40 by the end of the year. Ross mentioned that "the main driver in many ways, as well as the main support in recent times, have been the expectations that the Bank of England will raise interest rates at some point next year, probably the beginning 2016."
GBP/USD keeps struggling to appreciate
The Sterling suffered serious losses on Tuesday, amid worse-than-expected fundamental data. As a result, the immediate support was breached, causing the GBP/USD to decline to a support cluster around 1.5460. The bearish trend is not yet to be broken, despite a possible rebound to occur today, with gains limited by the 55-day SMA at 1.5550. The SMA is also bolstered by the resistance trend-line, which prevented yesterday's rally. However, the British currency remains at risk of falling towards 1.53, due to the broad Greenback strengthening.
Daily chart
Although the Cable did rally yesterday, it is not quite out of the bearish trend yet. After a surge on Monday, the pair again started to experience weakness and edge lower. Today the Sterling was unable to maintain trade above the 1.56 major level and is on the way to negate Monday's gains. However, the 1.5530 level prevented the GBP/USD from falling lower earlier and could provide sufficient support for the Pound to bounce back.
Hourly chart
Bullish market sentiment is weakening
Less traders now have a positive outlook towards the Cable, namely 57% of them are bullish. The share of orders to buy the Pound also shrank, from 51 to 37%.
Other market participants appear to have a bearish perspective towards the GBP/USD. The SAXO Group has 52% of short positions, whereas the portion of shorts at OANDA takes up 54% of the market.
Spreads (avg, pip) / Trading volume / Volatility
17% of traders assume the Sterling will cost between 1.60 and 1.62 dollars in three months
The majority of survey participants expect the British Pound to cost more than 1.56 dollars within a three month period, namely 63% of them. The 1.60-1.62 price interval retains the most amount of votes, as 17% of traders chose it. The second most popular choice was the 1.50-1.52 price range, selected by 15% of the surveyed. At the same time, the mean forecast for October 8 is 1.5791.
Keeping in mind a lack of reports from Britain during this five trading days and potentially, a stronger Dollar, the depreciation can continue. Nevertheless, traders could pay additional attention to the data on the UK trade balance as well as BoE interest rate decision on Friday. Additionally, almost 64% of votes were bearish, "GBP/USD seems bearish on the daily chart. Greece has voted No in the referendum on Sunday. This means that now Greece might exit the Euro Zone altogether. This uncertainty causes strong risk aversion in markets, as investors could prefer USD over GBP, as a "safe haven".
One of the bullish Dukascopy community members, Stix, said that he sees the following week closing with a test of 1.60 area, being mid-point on the Weekly bias. "Pressure is still currently short, so I am expecting a slight break of 1.54 first", he added. However, STARLINE, a trader with a bearish perspective towards the Cable, mentioned that "the Pound should drop significantly, I believe that all the overall sentiment is negative, the Euro is certainly in focus, and the prospects are very pessimistic."